WOCA load of rubbish – fiddling aid numbers at the G8

As expected, some of the more aid sceptic governments will be seeking ways to wriggle out of their commitments at the G8 summit, which opens in Italy today. But rather than just say ‘we’re breaking our promises – tough’, they are floating various kinds of creative accounting to allow them to meet their commitments without actually spending more money.

The approach pushed by Sylvio Berlusconi is the ‘whole of country approach’ (WOCA for short). Italy wants to remove the distinction between public and private aid. It would like all financial transfers to developing countries originating in Italy – including migrants’ remittances and funds provided by NGOs, as well as public aid flows – to contribute to the country’s aid ranking.

Like all the best bits of political spin, this makes superficial sense – as an Oxfam employee, I’m hardly likely to argue that aid has to come from governments to be useful. But clearly some kinds of capital flow are more ‘aid like’ than others, so there will be a lot of room for confusion (and creative accounting) about where the boundaries lie. For example, in its response to the new challenges for development cooperation caused by the global economic crisis, the European Commission put forward a “Whole of the Union” approach arguing that not just official aid but also export credits, investment guarantees and technology transfers should be counted towards the EU’s development contribution. Others are bound to argue that military spending should be included.

Whatever the theoretical merits of the argument, it’s impossible to divorce Italy’s attempt to move the accounting goalposts from its dismal record on aid. According to Iacopo Viciani, the coordinator of an NGO task force on aid effectiveness,  the Italian government has never contributed more than 0.2% of its GDP to development aid. In 2007, Prodi’s government established a timeline for increasing aid in order to meet the 0.51% EU target by 2010. But despite budget increases, aid spending remained at 0.2% in 2008 instead of rising to 0.33% as planned. And it only gets worse: the 2009 budget includes a drastic cut (by 56%) in the aid budget. In January 2009 development allocations reached their lowest level ever, at €321 million – less than the amount collected privately by NGOs.

But even more dangerous than Italy’s attempts to justify its feeble performance is the precedent it sets for other G8 countries to follow suit. They are all in recession (see graph) and there will be ever-louder voices in every Finance Ministry seeking a reverse gear on aid.

So watch out for signs of goalposts being shifted, amid the inevitable spate of lazy headlines about earthquakes, tremors etc (the summit has been moved to l’Aquila, the site of a horrendous earthquake earlier this year).

For G8 watchers, Thursday is climate change day, and Friday covers aid, food and Africa (see optimistic FT curtain raiser on the shift from food aid to investment in agriculture). See here for Oxfam’s coverage of events, and here for my colleague Max Lawson’s curtain-raiser opinion piece. And my favourite G8 moment so far? Bob Geldof getting Sylvio Berlusconi to apologise for breaking his promises on aid. You couldn’t make it up.

Is this global crisis big enough?

This comment piece went up on the Guardian ‘Comment is Free’ site yesterday, where it attracted the standard collection of random and/or extreme comments – people seem to visit the Guardian site largely in search of catharsis, picking fights and otherwise having a good rant. Definitely makes me appreciate the civilised conversation on this blog.

As the first signs of “green shoots” start to appear in headlines and the housing market, a rather depressing question keeps nagging at me: “Is the current economic ’shock’ big enough?” It might seem an odd question to ask when a crisis is destroying jobs, decimating trade and driving many countries to the brink of insolvency. No one, least of all Oxfam, is hoping for anything but a quick recovery.

But crises don’t only destroy; they can also create once-in-a-generation opportunities when the world re-examines the way we do things. Women won the vote in Britain after the first world war had transformed their role in society. In the US the Great Depression led to the New Deal. As Rahm Emmanuel, Obama’s chief of staff, remarked recently: “You never want a serious crisis to go to waste.”

Could the current crisis create the conditions for profound changes that would benefit the majority of the world’s people in the long run; or is the current doom and gloom devoid of any such silver lining?

The latest figures from the IMF are certainly shocking. The global economy is in full recession, predicted to shrink by 1.3% this year (at least until the next downward revision of forecasts). Advanced economies have suffered a massive 3.8% fall in output. And although the developing world isn’t doing quite so badly as the rich countries – it is predicted to achieve sluggish positive growth – a close examination of the numbers reveals that the impact on poor people looks very worrying.

In per capita terms (ie allowing for population growth), developing country economies are shrinking, after years of progress. Using the World Bank estimate that a loss of 1% of global economic output pushes 20m people into poverty, by the end of 2009, 100 million more people will be living below $1.25 a day than would otherwise be the case. Stop and read that again: below $1.25 a day.

That certainly fits economists’ definition of a “shock”, and a big one at that. What changes might such a shock trigger? There are already signs of some tectonic shifts. First, the geopolitical – the crisis has crystallised the rise of China. After keeping its head down during three decades of “peaceful rise”, Chinese diplomacy has suddenly become far more assertive, openly blaming the west for the crisis and calling for major reforms of the international financial system. The era of the G2 (US and China) begins here. More broadly, the G8 is now looking increasingly obsolete – real power has shifted to the G20, with far greater recognition of the role of emerging economies such as Brazil and India, as well as China.

Second, the end of the Great Deregulation. Since finance was let off the leash in the mid 1970s, it has boomed and come to dwarf the real economy. By 2007 the daily flow of capital across borders was 100 times greater than world trade. Backed by the power to make and break economies, the whims and prejudices of financial markets acquired absurd political importance. That has now given way to an era of reregulation and downsizing of the financial sector. Good thing too.

But other impacts are worrying or absent. At the G20 in London in April, the world wrote a huge cheque to the International Monetary Fund, in return for promises of reform. But it is far from certain that the IMF can transform itself from being an austerity-wielding devotee of the “Friedmanite tourniquet” to being an advocate of the kind of Keynesian ­reflation that is needed in poor countries right now.

Most worrying of all, climate change has so far taken a back seat. The G20 largely ignored the issue; progress in the UN talks that culminate in Copenhagen in December is (depressing irony, here) glacial. But we are running out of time. The longer we take in beginning a fundamental (and probably painful) shift to a low-carbon economy, the worse the climate change and pain of transition will become. At the current rate global greenhouse gas emissions will double in 25 years. They need to start falling fast by 2015 at the latest.

Some argue that we should sort out the economic crisis first, and then turn our attention to the longer-term issues such as climate change, but that is to ignore the role of crises in driving change.

The creation of the UN, World Bank and IMF – the global order of the second half of the 20th century – was the product of both the Great Depression and the second world war. World leaders meeting at the G8 next month have a real chance to grasp their once-in-a-generation opportunity. But my fear is that the current economic collapse will not be enough to convince us or them of the need for change. Will we need the climate equivalent of a world war before we and our leaders accept the need to shift to a low carbon world? The scale of such a climate shock, its irreversibility, and the impact on the lives of millions of ordinary people make that a very bad last resort.

Why the UK held the line on aid spending, despite the recession

Apologies for a bit of British parochialism, but this story has wider ramifications. A combination of political leadership and grassroots activism scored a real victory for the UK aid budget yesterday. Here’s why.

All the headlines on Wednesday’s budget statement by Chancellor of the Exchequer (Finance Minister) Alistair Darling were about the dire state of UK finances, and the extreme pressure building on public spending. Amazing then, that buried in the gloomy analysis was an important victory – the UK decided against cutting aid despite the recession. That decision meant that £700 million that had been under threat will now be spent on aid.  Read More …

G8 sees rising hunger as a threat to global stability

A significant new addition to the growing chorus of voices expressing concern on hunger and food prices. The food crisis has not gone away since last year, even if the general economic meltdown has driven it from the headlines. World Bank officials have been warning that plantings may be down this year; the FAO has found that consumer prices in poor countries have got stuck, and are diverging from falling world prices (see here) and now Javier Blas at the Financial Times has got hold of a grim report to the upcoming G8 ministerial meeting on agriculture in Italy from 18-20 April. Here are some excerpts from Javier’s piece:

‘The report, entitled “The global challenge: to reduce food emergency”, warns that global food production needs to double by 2050 to feed a surging population while at the same time dealing with “pronounced climate changes” and higher input costs.

“Without immediate interventions in agriculture and agri-marketing systems, the 2007 crisis will become structural in only a few decades,” the document, drafted by the G8’s Italian presidency and seen by the Financial Times, warns. It adds that a further food crisis will have “serious consequences not merely on business relations but equally on social and international relations, which in turn will impact directly on the security and stability of world politics”.

A combination of lower growth, rising unemployment and falling remittances together with persistently high food prices has pushed the number of chronically hungry above 1bn for the first time. Although agriculture commodity prices have fallen since then by up to 50 per cent, they continue well above their pre-crisis level. “The issue of price volatility remains a crucial element for world food security,” the report says. “There is a need for a fast increase of agricultural production in developing countries.”

In the US, the world’s largest exporter of agricultural commodities, farmers are set to break with five years of cropland expansion, cutting their acreage by 7m, the largest fall in 20 years. Elsewhere, the concern is that cash-strapped farmers, particularly in breadbasket countries such as Ukraine, Argentina and Brazil, will reduce their use of high-yield hybrid seeds and fertilisers, hurting output.
The main nightmare scenario among food aid and agriculture officials – and the food industry – is that an unexpected spate of bad weather harms the next crop. With agriculture commodities stocks at multiyear lows, that could push prices up, triggering another crisis on top of the economic one.’

Promises v Reality: The Widening Credibility Gap on Aid

The backsliding began almost as soon as the ink was dry on the promises of increased aid made at the 2005 G8 summit in Gleneagles. Have a look at the graphic, based on the latest figures.

It comes from a recent analysis of the latest aid numbers by ace crunchers, Development Initiatives, by way of Owen Barder’s blog. Here are some key points:

Read More …

What Happened at the G20 Summit on Saturday?

Some initial thoughts on the emergency summit in Washington DC, held to respond to the financial crisis. First, some positives: it was the first time the G20 have met at heads of state level. Could this mark the start of the eclipse of the G8, as major developing countries take a seat at a larger table? It still leaves serious concerns about the exclusion of the others (for example South Africa is the sole representative from the whole African continent), but it’s undoubtedly an improvement on the G8. Read More …

Just when you thought the Washington Consensus was dead, along comes the G8…

with an alarmingly retro ‘Declaration on the World Economy’ from this week’s summit in Hokkaido. Look at these two excerpts. Read More …

It’s G8 time again

In Hokkaido, Japan, this week, staff from across Oxfam International will be lobbying governments, talking to the press, and periodically donning the ‘big heads’ – giant replicas of the G8 leaders, which we lug around from conference to conference. Dreaming up stunts for the big heads is one of the more fun bits of summitry, and provides an essential service to TV journalists. There’s nothing visually duller than men in suits sat in front of microphones. Read More …